‘Stepping up: fixing the funding ladder for MSBs’ recommends ways the Government can encourage long-term debt and equity investment in these firms. The ‘forgotten army’ of Britain’s businesses, MSBs represent just 1.8 per cent of companies, but generate nearly a quarter of private sector revenue and make up 16 per cent of total employment.
With over half of MSBs finding it hard to access a loan for longer than five years, the UK’s largest business group, together with the accountancy firm, BDO, are calling on the Government to better incentivise this type of funding by creating new funding vehicles (Long Term Lending Trusts) which offer income tax relief to savers investing in long-term MSB debt funding, as well as changing the way the Enterprise Finance Guarantee works, by rewarding lenders for providing longer-term loans.
The long term lending trusts would extend tax incentives to investors who are willing to commit to providing long-term debt, in a similar way to the successful Venture Capital Trust scheme, for at least five years. Targeting individual savers, it should offer a return based on yield, not capital gain, and income tax relief, with a deduction from income tax in the year of investment.
The long term lending trust, which would cost the Government only £310 million a year and could unlock billions of new long-term loans, would likely provide relatively high returns, whilst offering a strong degree of protection, being run by an investment professional.
It also suggests that the Government should continue to actively promote the benefits that private placements have for British companies, boosting awareness and demand, and make the UK the best place to list on a growth equity market by allowing companies already listed on the London Stock Exchange’s AIM to raise more capital from existing investors without the need to produce a prospectus.
John Cridland, CBI Director-General, said: “Building up a British ‘mittelstand’ of successful medium-sized businesses is mission critical to our economic future. With little recognition, these firms quietly toil away, creating jobs in communities and boosting growth in every corner of the nation.
“A key part of unlocking their enormous potential is for the Government to fix the funding ladder, filling in the gaps in supply of long-term finance that the UK’s brightest growing firms need to succeed.
“Incentivising savers to invest in our businesses for the long-run is a win win. It offers them attractive, alternative investment packages, while helping propel medium-sized businesses along their growth path, boosting the economy as a whole, and enhancing productivity.”